You simply want to acquire, at a sensible price, a business with excellent economics and able, honest management.
– Warren Buffett
Unfortunately, bad CEOs are a dime a dozen. There is no shortage of dishonest people willing to cook the books, destroy shareholder value with wasteful spending, and demand outrageous executive compensation packages for themselves and their cronies. A few criminal CEOs that come to mind:
- Jeffrey Skilling, former CEO of Enron (bankrupt)
Serving 24 years for fraud and insider trading - Bernie Ebbers, former CEO of WorldCom (bankrupt)
Serving 25 years for accounting fraud - Dennis Kozlowski, former CEO of Tyco
Serving 8 1/3 to 25 years for stealing $134 million - John Rigas, former CEO of Adelphia Communications (bankrupt)
Serving 12 years for bank, wire, and securities fraud - Sanjay Kumar, former CEO of Computer Associates
Serving 12 years for obstruction of justice and securities fraud - Walter Forbes, former CEO of Cendant
Serving 12 years for accounting fraud - Richard Scrushy, former CEO of HealthSouth
Serving 6 years 10 months for bribery and mail fraud
And there are plenty of others that didn’t go to jail but were able to destroy their companies nonetheless: AIG’s Martin Sullivan, Fannie Mae’s Franklin Raines, and Lehman Brothers’ Dick Fuld are just a few losers that immediately come to mind.
Depressing stuff. But never fear! There are good business people in the world. I went to KCI’s investment experts to find them. After all, it is the job of these wealth wizards to identify great companies to invest in. Finding “able, honest management” — as Warren Buffett likes to say — is a big part of the search. A 2003 joint Harvard and Wharton study entitled “Corporate Governance and Equity Prices” found that companies with good corporate governance generated superior future returns and higher profits and sales growth. Later studies have confirmed these conclusions, not just in the U.S. stock market, but in markets around the world.
With that in mind, I asked KCI’s investment gurus the following question:
Who is Your Favorite CEO?
Not surprisingly, our friends at KCI had no difficulty coming up with the names of great corporate managers who have succeeded – and, more importantly, are expected to continue to succeed — at creating shareholder value. Read on to find out their thoughts on what makes a great CEO:
Roger Conrad — Utility Forecaster, Canadian Edge, MLP Profits
I’m a big fan of CEOs who build something over time, rather than try simply to maximize the quarterly numbers. My favorite of all time was the late Dan Duncan, who built the Enterprise Products Partners (NYSE: EPD) empire.
But I’m also a great admirer of Nick DeBenedictis who, in the space of less than two decades, turned a small Pennsylvania company called Philadelphia Suburban into today’s Aqua America (NYSE: WTR), one of the nation’s largest water utilities serving three million people. Nick started out — believe it or not — as a state regulator, a position from which he saw the fragmented and unsafe state of the
Aqua
Elliott Gue — Personal Finance, Energy Strategist, MLP Profits, Stocks on the Run
I like Andrew Gould, CEO of oil services giant Schlumberger (NYSE: SLB). As Energy Strategist subscribers know, I always pay particular attention to the company’s quarterly conference calls because Schlumberger has an unparalleled birds-eye view of the industry. The company literally operates in every region of the world that produces oil or natural gas. Gould also hosts lengthy conference calls and Q&A sessions where he discusses not only company-specific information but also provides a macro “big picture” outlook for the industry.
This means that Gould has a good idea which markets are strengthening and which are losing steam. Back in 2006, I remember that he was the first to highlight overcapacity in pressure pumping equipment and helped me and Energy Strategist subscribers avoid getting burned in those stocks.
Yiannis Mostrous — Silk Road Investor, Global ETF Profits, Stocks on the Run
CEOs are only as good as their teams and advisors. That said, the biggest quality of a CEO is the ability to lead people. There have been several such great CEOs throughout the years – Lee Iacocca’s leadership at Chrysler during the 1980s comes easily to mind. The leadership qualities Iacocca demonstrated shine brightest — and are most needed — during times of company crisis. Unfortunately, the financial crisis of 2008 revealed that great CEO leaders are a rare commodity these days.
Still, some great CEOs continue to exist. My choice for the management team best able to anticipate the future and position its company to benefit is David Novak and his lieutenants at Yum! Brands (NYSE: YUM). The company, which operates KFC, Taco Bell, and Pizza Hut, was the first to appreciate the economic growth opportunities in emerging markets, particularly in
David Dittman – Canadian Edge
I’m a big fan of the leadership team at Atlantic Power (NYSE: AT), including CEO Barry Welch and CFO Patrick Welch. Barry and Patrick (not related) are both generous with their time and have also set a nice standard of sharing information and guidance with investors. Atlantic Power recently disclosed that cash flow from existing contracts is sufficient to cover the company’s dividend through 2016; other companies are starting to provide the same type of guidance.
Benjamin Shepherd – Global ETF Profits, Louis Rukeyser’s Mutual Funds
In my arena, originality is often a vice – it tends to lead fund managers down gimmicky paths. But, just as with CEOs, independence based on rigorous analysis and conviction is a virtue.
Bruce Berkowitz of the Fairholme Fund (FAIRX) is perhaps the portfolio manager that I most respect. There’s little originality in what he does as a value manager, relying on very traditional metrics to identify companies that, for whatever reason, the markets are yet to appreciate. What sets Berkowitz apart is his independent streak that enables him to invest in companies that other managers would be loath to stake their reputations on. Rather than chasing market darlings – buying the high sentiment stocks and bonds that no one would question – he has the conviction to invest in undervalued companies that the market ignores and then wait for the markets to catch up to him.
One of the best examples of that independence is the large stake Berkowitz took in AmeriCredit (NYSE: ACF) at the height of the financial crisis. An auto finance company with heavy investments in subprime auto loans, it had been essentially left for dead by late 2008. In desperate need of financing, AmeriCredit and Berkowitz entered into a deal in which some existing debt was swapped for common shares. Furthermore, Berkowitz had such confidence in the company that he purchased an additional $123 million in new debt from it. An extremely risky proposition, Berkowitz has come out smelling like a rose because, like a good CEO, he had the conviction to bet on a solid business.
Jim Fink – InvestingDaily.com
Besides maybe Warren Buffett, I can’t think of a greater CEO than Steve Jobs, co-founder of Apple (NasdaqGS: AAPL). The primary job of a CEO is to deliver outstanding returns for shareholders and nobody has enriched his shareholders more than Jobs has over the past 15 years. From the time he became Apple CEO in September 1997 until September 2009, Apple’s market cap increased by a mind-boggling $150 billion on the back of Jobs’ revolutionary iPod music player, iTunes music store, and iPhone smartphone.
The best compliment I can give Jobs is to call him the anti-John Akers, a paper-shuffling IBM (NYSE: IBM) bureaucrat who was a technological Luddite if I ever saw one.
As the 1976 co-founder of Apple, Jobs’ corporate accomplishments obviously predate 1997. After spearheading the introduction of the revolutionary Macintosh personal computer in 1984, he was forced out of Apple in 1985 by a bean-counting and unimaginative executive named John Sculley whom Jobs had personally recruited two years earlier (ouch!).
Upon his 1985 ouster, Jobs founded NeXT which proceeded to develop a revolutionary new “object-oriented” computer operating system that would, after Apple acquired NeXT in 1996, become the foundation for Apple’s current Mac OS X operating system.
Jobs also purchased the computer graphics division of Lucasfilm in 1986 and renamed it Pixar. Pixar went on to become the preeminent computer animated film company in the world.
Based on this short history and my continual use of the word “revolutionary,” it becomes clear what has made Jobs such a great entrepreneur and corporate leader – he is a visionary. Jobs can see what the consumer wants next before anyone else. In that vein, he is similar to Jim Clarke, the venture capitalist and Netscape founder portrayed in Michael Lewis’ book The New New Thing.
Vision is only part of Jobs’ skill set, however — he also has the passion, energy, and business sense necessary to get from concept to marketable product in a cost-effective manner. I think passion is key, because it is infectious and can motivate employees to do great things. Just look at Jobs’ charisma in this 1983 video where he gave a keynote speech introducing the Macintosh computer. Wouldn’t you follow him anywhere?
Since becoming Apple’s CEO in 1997, Jobs’ cash salary has been only $1 per year and he has not sold a single share of his Apple stock. His personal financial incentives are completely aligned with the average shareholder, yet another sign of a great CEO.
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